Jefferson Bancshares, Inc. Announces Earnings for the Quarter and Six Months Ended December 31, 2012

  Jefferson Bancshares, Inc. Announces Earnings for the Quarter and Six Months
  Ended December 31, 2012

Business Wire

MORRISTOWN, Tenn. -- January 31, 2013

Jefferson Bancshares, Inc. (NASDAQ: JFBI), the holding company for Jefferson
Federal Bank (the “Bank”), announced net income for the quarter ended December
31, 2012 of $348,000, or $0.05 per diluted share, compared to a net loss of
$3.7 million, or $0.59 per diluted share, for the quarter ended December 31,
2011. The improvement in net income is primarily due to a decrease in the
provision for loan losses and a decrease in valuation adjustments and expenses
on other real estate owned (“OREO”). The provision for loan losses was
$300,000 for the quarter ended December 31, 2012 compared to $5.7 million for
the comparable period in 2011.

For the six months ended December 31, 2012, the Company reported net income of
$643,000, or $0.10 per diluted share, compared to a net loss of $4.6 million,
or $0.74 per diluted share, for the six months ended December 31, 2011. The
provision for loan losses was $600,000 for the six months ended December 31,
2012 compared to $8.7 million for the comparable period in 2011.

Anderson L. Smith, President and Chief Executive Officer, commented, “We are
pleased to report our fourth consecutive quarter of profitability.
Improvements in asset quality trends have resulted in a lower provision for
loan losses for the quarter and six months ended December 31, 2012 compared to
the prior year. We have focused our efforts on improving asset quality and are
pleased with the steady progress made in reducing the level of adversely
classified assets. We continue to maintain a strong liquidity position and our
regulatory capital ratios exceed those required to be considered ‘well
capitalized’ for regulatory purposes. However, as with most financial
institutions, we expect pressure on the net interest margin during 2013 due to
the ongoing low interest rate environment.  Loan growth is expected to be a
challenge during 2013 due to tepid loan demand and heightened competition for
high quality loans.”

Net interest income decreased $430,000, or 9.4%, to $4.1 million for the
quarter ended December 31, 2012 compared to $4.6 million for the same period
in 2011. The decrease in net interest income is primarily due to lower average
balances and lower yields on loans, partially offset by lower average balances
and lower rates on deposits. The net interest margin was 3.69% for the quarter
ended December 31, 2012 compared to 3.77% for the same period in 2011. The net
interest margin continues to trend downward, as yields on interest-earning
assets have declined more than the reductions in the cost of funds. For the
six months ended December 31, 2012, net interest income decreased $1.1
million, or 11.5%, to $8.3 million compared to $9.3 million for the six months
ended December 31, 2011, while the net interest margin decreased 17 basis
points to 3.63% compared to 3.80% for the same period in 2011.

Noninterest income remained relatively stable at $581,000 for the quarter
ended December 31, 2012 compared to the same period in 2011. For the six
months ended December 31, 2012, noninterest income decreased $144,000, or
12.2%, to $1.0 million compared to $1.2 million for the same period in 2011,
due primarily to a $130,000 increase in loss on sale of foreclosed real
estate.

Noninterest expense decreased $1.1 million, or 22.3%, to $4.0 million for the
quarter ended December 31, 2012 and decreased $1.2 million, or 13.7%, to $7.9
million for the six months ended December 31, 2012 compared to the same
periods in 2011. The decrease for the three and six month periods was
primarily the result of decreases in valuation adjustments and expenses on
OREO totaling $1.2 million and $1.4 million, respectively.

At December 31, 2012, total assets were $520.1 million compared to $522.9
million at June 30, 2012. Net loans decreased $6.7 million, or 2.1%, to $315.8
million at December 31, 2012, compared to $322.5 million at June 30, 2012, due
to reduced loan demand combined with normal paydowns on existing loans.
Reduced loan demand is primarily the result of continued economic weakness in
the Bank’s market areas.

Total deposits decreased $4.7 million, or 1.1%, to $419.2 million at December
31, 2012 compared to $423.9 million at June 30, 2012. Certificates of deposit
decreased $17.0 million, or 10.0%, to $153.4 million while transaction
accounts increased $12.3 million, or 4.9%, to $265.8 million at December 31,
2012. The increase in transaction account balances was primarily attributable
to fluctuations in existing customer balances. The average cost of
interest-bearing deposits for the three month period ended December 31, 2012
was 0.44% compared to 0.83% for the corresponding period in 2011. Certificates
of deposit comprised 36.6% of total deposits at December 31, 2012 compared to
40.2% of total deposits at June 30, 2012.

The Bank continues to be well-capitalized under regulatory requirements. At
December 31, 2012, the Bank’s total risk-based, Tier 1 risk-based, and Tier 1
leverage capital ratios were 14.10%, 12.85%, and 9.01%, respectively, compared
to 13.42%, 12.17%, and 8.23%, respectively, at June 30, 2012. At December 31,
2012, the Company had 6,629,753 common shares outstanding with a book value of
$8.06 per common share.

Nonperforming assets totaled $22.2 million, or 4.26% of total assets, at
December 31, 2012, compared to $25.2 million, or 4.82% of total assets, at
June 30, 2012. Nonaccrual loans totaled $14.4 million at December 31, 2012
compared to $18.6 million at June 30, 2012. Nonaccrual loans with a current
payment status represented approximately 73% of total nonaccrual loans at
December 31, 2012. Foreclosed real estate totaled $7.0 million at December 31,
2012 compared to $6.1 million at June 30, 2012. Net charge-offs for the three
months ended December 31, 2012 were $359,000, or 0.45% of average loans
annualized, compared to $5.0 million, or 5.35% of average loans annualized,
for the quarter ended December 31, 2011. The allowance for loan losses was
$5.7 million, or 1.77% of total loans, at December 31, 2012 compared to $5.9
million, or 1.78% of total loans, at June 30, 2012 and $10.9 million, or 3.00%
of total loans, at December 31, 2011. The provision for loan losses totaled
$300,000 for the quarter ended December 31, 2012, compared to $5.7 million for
the quarter ended December 31, 2011. The adequacy of the allowance for loan
losses is evaluated quarterly and adjusted as necessary to maintain an
appropriate reserve for probable losses in the loan portfolio. In addition,
the Federal Deposit Insurance Corporation and Tennessee Department of
Financial Institutions, as an integral part of their examination process,
periodically review our allowance for loan losses and may require the Company
to recognize adjustments to the allowance for loan losses based on their
judgments about information available to them at the time of their
examination.

Jefferson Bancshares, Inc. is the holding company for Jefferson Federal Bank,
a Tennessee-chartered savings bank headquartered in Morristown, Tennessee.
Jefferson Federal Bank is a community oriented financial institution offering
traditional financial services with offices in Hamblen, Knox, Washington and
Sullivan Counties, Tennessee. The Company’s stock is listed on the NASDAQ
Global Market under the symbol “JFBI.” More information about Jefferson
Bancshares and Jefferson Federal Bank can be found at its website:
www.jeffersonfederal.com.

This press release, as well as other written communications made from time to
time by the Company and its subsidiaries and oral communications made from
time to time by authorized officers of the Company, may contain statements
relating to the future results of the Company (including certain projections
and business trends) that are considered “forward-looking statements” as
defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”).
Such forward-looking statements may be identified by the use of such words as
“believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “intend”
and “potential.” For these statements, the Company claims the protection of
the safe harbor for forward-looking statements contained in the PSLRA.

The Company cautions you that a number of important factors could cause actual
results to differ materially from those currently anticipated in any
forward-looking statement. Such factors include, but are not limited to:
prevailing economic and geopolitical conditions; changes in interest rates,
loan demand, real estate values and competition; changes in accounting
principles, policies and guidelines; changes in any applicable law, rule,
regulation or practice with respect to tax or legal issues; and other
economic, competitive, governmental, regulatory and technological factors
affecting the Company’s operations, pricing, products and services and other
factors that may be described in the Company’s annual report on Form 10-K and
quarterly reports on Form 10-Q as filed with the Securities and Exchange
Commission. The forward-looking statements are made as of the date of this
release, and, except as may be required by applicable law or regulation, the
Company assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.

                                                    
                                                        
                                                        
JEFFERSON BANCSHARES, INC.
                                                                       
                     At                At
                     December 31,      June 30, 2012
                     2012
                     (Dollars in thousands)
                                                                             
Financial
Condition Data:
Total assets         $ 520,083         $ 522,930
Loans                  315,828           322,499
receivable, net
Cash and cash
equivalents, and       47,265            56,693
interest-bearing
deposits
Investment             95,976            83,483
securities
Deposits               419,220           423,882
Repurchase             843               398
agreements
FHLB advances          37,663            37,863
Subordinated           7,302             7,245
debentures
Stockholders'        $ 53,446          $ 52,629
equity
                                                                             
                                                                             
                                                                             
                                                                             
                     Three Months Ended December 31,      Six Months Ended December 31,
                     2012              2011               2012               2011
                     (Dollars in thousands, except        (Dollars in thousands, except
                     per share data)                      per share data)
                                                                             
Operating Data:
Interest income      $ 4,931           $ 5,775            $ 9,900            $ 11,895
Interest expense       789               1,203              1,635              2,558
Net interest           4,142             4,572              8,265              9,337
income
Provision for          300               5,687              600                8,673
loan losses
Net interest
income after           3,842             (1,115    )        7,665              664
provision for
loan losses
Noninterest            581               578                1,037              1,181
income
Noninterest            3,961             5,095              7,867              9,115
expense
Earnings before        462               (5,632    )        835                (7,270    )
income taxes
Total income           114               (1,965    )        192                (2,645    )
taxes
Net earnings         $ 348               ($3,667   )      $ 643                ($4,625   )
                                                                             
                                                                             
Share Data:
Earnings per         $ 0.05              ($0.59    )      $ 0.10               ($0.74    )
share, basic
Earnings per         $ 0.05              ($0.59    )      $ 0.10               ($0.74    )
share, diluted
Book value per       $ 8.06            $ 7.78             $ 8.06             $ 7.78
common share
Weighted average
shares:
Basic                  6,260,122         6,219,673          6,260,677          6,224,970
Diluted                6,260,122         6,219,673          6,260,677          6,224,970
                                                                             
                                                                             
                                                                             
                                                                             
                     Three Months Ended December 31,      Six Months Ended December 31,
                     2012              2011               2012               2011
                     (Dollars in thousands)               (Dollars in thousands)
                                                                             
Allowance for
Loan Losses:
Allowance at
beginning of         $ 5,761           $ 10,204           $ 5,852            $ 8,181
period
Provision for          300               5,687              600                8,673
loan losses
Recoveries             8                 42                 400                82
Charge-offs           (367      )      (5,053    )       (1,150    )       (6,056    )
Net Charge-offs       (359      )      (5,011    )       (750      )       (5,974    )
Allowance at end     $ 5,702          $ 10,880          $ 5,702           $ 10,880    
of period
                                                                             
Net charge-offs
to average
outstanding            0.45      %       5.35      %        0.46      %        3.16      %
loans during the
period,
annualized
                                                                             
                                                                             
                                                                             
                                                                             
                     At                At                 At
                     December 31,      June 30, 2012      December 31,
                     2012                                 2011
                     (Dollars in thousands)
                                                                             
Nonperforming
Assets:
Nonperforming        $ 14,416          $ 18,562           $ 9,561
loans
Nonperforming          721               207                276
investments
Real estate            7,019             6,075              8,902
owned
Other
nonperforming         19              348              1         
assets
                                                                             
Total
nonperforming        $ 22,175         $ 25,192          $ 18,740    
assets
                                                                             
                                                                             
                                                                             
                                                                             
                     Six Months        Year Ended         Six Months
                     Ended                                Ended
                     December 31,      June 30, 2012      December 31,
                     2012                                 2011
                                                                             
Performance
Ratios:
Return on              0.25      %       (0.74     %)       (1.69     %)
average assets
Return on              2.41      %       (7.37     %)       (16.48    %)
average equity
Interest rate          3.54      %       3.60      %        3.67      %
spread
Net interest           3.63      %       3.72      %        3.80      %
margin
Efficiency ratio       84.69     %       83.38     %        86.98     %
Average
interest-earning
assets to              112.52    %       111.99    %        112.35    %
average
interest-bearing
liabilities
                                                                             
Asset Quality
Ratios:
Allowance for
loan losses as a       1.77      %       1.78      %        3.00      %
percent of total
loans
Allowance for
loan losses as a
percent of             39.55     %       31.53     %        113.86    %
nonperforming
loans
Nonperforming
loans as a             4.48      %       5.65      %        2.63      %
percent of total
loans
Nonperforming
assets as a            4.26      %       4.82      %        3.53      %
percent of total
assets
                                                                             
                                                                             

Contact:

Jefferson Bancshares, Inc.
Anderson L. Smith, President and Chief Executive Officer, 423-586-8421
or
Jane P. Hutton, Chief Financial Officer, 423-586-8421
 
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